Has the Fed Responded to House and Stock Prices? A Time-Varying Analysis

Norges Bank Working Paper 01/2017

Number of pages: 28Posted: 20 Apr 2017

You are currently viewing this paper

Downloads 21

Date Written: March 8, 2017

Abstract

In this paper we use a structural VAR model with time-varying parameters and stochastic volatility to investigate whether the Federal Reserve has responded systematically to asset prices and whether this response has changed over time. To recover the systematic component of monetary policy, we interpret the interest rate equation in the VAR as an extended monetary policy rule responding to inflation, the output gap, house prices and stock prices. We find some time variation in the coefficients for house prices and stock prices but fairly stable coefficients over time for inflation and the output gap.

Our results indicate that the systematic component of monetary policy in the US:

i) attached a positive weight to real house price growth but lowered it prior to the crisis and eventually raised it again and,

SSRN Rankings

About SSRN

We use cookies to help provide and enhance our service and tailor content.By continuing, you agree to the use of cookies. To learn more, visit our Cookies page.
This page was processed by aws-apollo3 in 0.203 seconds